After a largely tedious 16 months, the saga of the Province of Buenos Aires’ restructuring drew to a close this week. With an acceptance rate of 93.23%, allowing the issuer to exchange nearly 98% of its more than $7.1bn of international bonds, at first glance the offer achieved broad approval.
This does not tell the full story. To close its deal, Buenos Aires demonstrated extreme proficiency in some of the dark arts of restructuring tactics, including re-designation strategies and exit consents. Effectively, once the province had struck a deal with GoldenTree Asset Management, its largest creditor, it was able to carefully structure an offer that would punish non-participating investors. Careful use of collective action clauses effectively forced any holdouts to participate.
Unsurprisingly, some bondholders are up in arms at such gun-to-head tactics. Calling the province’s offer “flawed”, not representative of a “good faith negotiation”, and an “abuse of the role of collective action clauses”, they argue the cynical approach would “cast a long shadow over [the province’s] reputation in the international credit markets”.
Sure, Buenos Aires’ coercive tactics leave a bitter taste — not least because analysts thought the issuer’s offer was pretty much in line, on economic terms, with the latest counter-offer from the very same bondholders who ended up offended. Such a move thus appeared needlessly aggressive.
Yet these shunted bondholders are dreaming, if they think that such an episode will hurt Argentina’s largest province’s bond market access.
Clearly, provincial governor Axel Kicillof relishes the drama of confrontations with bondholders, as seen in 2014 when Argentina defaulted on his watch. That is the only explanation for Buenos Aires’ restructuring taking such an incongruous length of time in a country that — despite questionable macroeconomic policy — has shown through its sovereign restructuring, nine other provincial debt workouts and its talks with the Paris Club that it is keen to maintain reasonable investor relations.
But though there may well be a Kicillof premium built into valuations of the Buenos Aires’ bonds for a while, bond markets have notoriously short memories, as the aftermath of Kicillof’s last barney with bondholders showed. Less than two years after Kicillof was fighting hedge funds in a New York court, EM bond buyers were enthusiastically lapping up tens of billions of dollars of new Argentinian paper under a new government. By the time the Province of Buenos Aires is ready to return to markets, Kicillof — who will leave office in 2023 — will be long gone.
While bond buyers may find several reasons to shun any new deals from the Argentine sovereign or sub-sovereigns, a notorious bond market villain such as Kicillof acting true to character is not going to be one of them. Bond buyers will be quick to forgive and forget.